The company’s one-year-old Meu Cartao credit-card division
will probably become profitable in 2013, a year earlier than
forecast, said Chief Financial Officer Adalberto Santos.
Consumers now finance 54 percent of their purchases at Renner’s
174 stores nationwide with Renner credit cards, he said.

Renner is doubling down on its bet that its credit card,
which is issued under the Visa and MasterCard brands and can be
used anywhere, will fuel sales by shoppers while also allowing
it to profit from real interest rates that are the second
highest among G-20 nations. The Porto Alegre, Brazil-based
retailer expects national delinquency rates, which hit a 30-month high in May, to stabilize or fall in coming quarters,
Santos said in an interview at Bloomberg’s Sao Paulo office.

“The worst is over,” he said. “Compared to last year,
delinquency numbers should stay stable or get better -- we don’t
see them getting worse.”

Delinquency at Renner’s credit business, which Renner
manages on its own without any partnerships with banks, rose to
3.9 percent from 3.5 percent a year earlier.

Retail Pickup

“For years, electronic retailers in Brazil have made as
much profit from consumer credit as from sales of their products
because interest rates in Brazil have always been so high,”
Ricardo Correa, an analyst at Ativa Corretora, said in a phone
interview from Rio de Janeiro. “It’s only natural that clothing
and other retailers will want to follow this trend.”

Lojas Renner declined 2.3 percent to 64.80 reais at 12:02
p.m. in Sao Paulo. A close at that price would be the lowest
since Aug. 14. The benchmark Bovespa index was little changed.

Government measures to cut interest rates, reduce taxes and
ease reserve requirements are helping to ignite a recovery in
Brazil, the world’s largest developing economy after China.
Outstanding credit expanded 18 percent in June to 2.2 trillion
reais ($1.1 trillion).

Brazilian retail sales unexpectedly rose 1.5 percent in
June from the previous month, according to an Aug. 16 government
report. An economic activity index calculated by the central
bank grew 0.75 percent in June, more than the 0.6 percent
increase expected by economists in a Bloomberg survey.

The June data suggest that growth is picking up after the
government cut taxes on cars and home appliances and the central
bank lowered the benchmark rate to a record low of 8 percent.
Brazil is forecast to grow 1.9 percent this year, less than
China, Russia and India.

Soured Loans

Itau Unibanco Holding SA and Banco Bradesco SA, Brazil’s
two biggest banks by market value, both boosted provisions for
soured loans this year as a pickup in inflation and slower
economic growth eroded customers’ ability to make payments on
time. In September, Itau Chief Executive Officer Roberto Setubal
said that the problem of late payments was “pretty much under
control” and would start to improve in 2012.

Renner has gained 37 percent in Sao Paulo trading so far
this year, while the MSCI Brazil Consumer Discretionary Index
has advanced 1.6 percent. The MSCI Brazil index has declined 5.2
percent. Renner trades at about 26 times annual earnings,
compared with 36 for Marisa Lojas SA, 18 for Guararapes
Confeccoes SA, which runs Riachuelo stores, and 21 for Cia.
Hering, according to Bloomberg data.

‘Risky Business’

Renner shares, which declined 2 percent to 66.31 reais
yesterday, are trading at the closest to analysts’ 12-month
target price among retailers on the Bovespa index.

While Joao Pedro Brugger, a portfolio manager at Leme
Investimentos, which holds Renner shares, sees additional room
for Renner to rise, he said continued consumer indebtedness
could hurt profit.

“The company is adding a risky business that’s not its
main business, which could impact its financial results if
defaults increase,” he said in a telephone interview from
Florianopolis, Brazil.

Renner had 207 stores in June, including 33 Camicado
locations, according to its second-quarter presentation. The
company aims to boost that figure to 408 Renner and 125 Camicado
stores by 2021, Santos said.

The company is investing 220 million reais from 2011
through 2015 to add a third distribution center in Rio de
Janeiro and expand two others in Sao Paulo and Santa Catarina
states. The investment will allow Renner to use more space in
stores to display products for sale rather than storage and will
give the company more flexibility to manage fashion collections
depending on weather changes, Santos said.

‘More Efficient’

“We’ll be more efficient inside our stores,” he said in
the Aug. 21 interview. “We’ll be able to reduce the amount of
merchandise that is left over from season collections or
shortages, which are the No. 1 enemy of the retail industry.”

Renner’s second-quarter adjusted profit of 103.5 million
reais missed analysts’ estimates of 110.4 million reais in a
Bloomberg survey.

Other Brazilian retailers are also counting on growing
credit-card sales to fuel profit, including Marisa and
Guararapes’s Riachuelo.

“It’s an asset with considerable value,” Caue Pinheiro,
an analyst at SLW Corretora, said in a telephone interview from
Sao Paulo.